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Brocade Eyes SEC Settlement

Brocade could be close to a settlement with the U.S. Securities and Exchange Commission (SEC) regarding its accounting problems. But that may not be the end of the company's legal troubles. (See Brocade Reports Earnings.)

During Brocade's earnings call Thursday night, CEO Mike Klayko said the company is discussing a settlement with the SEC regarding its restatements related to stock options accounting. The switch maker has set aside $5 million for a settlement expense. Klayko said the $5 million was Brocades “best estimate, and subject to change as discussions continue.”

If that’s all it costs, Brocade may not even break a sweat, considering it reported net income of $12.6 million for last quarter and has $512 million cash on its balance sheet.

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“This is far less than we expected for what seemed like a blatant
accounting infraction,” financial analyst Steve Berg of Punk, Ziegel & Co. wrote today in a note to clients.

However, the SEC inquiry is just part of the problem regarding Brocade’s accounting woes. The SEC and U.S. Department of Justice (DOJ) have been jointly investigating Brocade, and Klayko did not say whether the DOJ was involved in the settlement talks. Brocade also faces class action suits from investors who claim the company misled them during the periods for which it's restated earnings. (See Brocade Hit With Class Action Suit.)

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